With inflation slowing down, but some prices, such as energy, under pressure, the Monetary Policy Committee (Copom) of the Central Bank (BC) holds this Wednesday (4) the penultimate meeting of the year. Market analysts believe the rate will remain at its highest level in almost 20 years.
Currently at 15% per year, the Selic is at its highest level since July 2006, when it was at 15.25% per year. Since September last year, the rate has been raised seven times in a row. At the July and September meetings, the Copom did not change the rate.
The decision on the Selic Rate will be announced early this Wednesday evening. In the minutes of the last meeting, in September, the Copom informed that the Selic rate will be maintained at 15% per year for an extended period of time.
According to the Copom minutes, the economic situation in the United States and the tariffs imposed by the country have had a “greater impact” than structurally challenging issues on the formation of market prices. In the domestic scenario, some prices, such as energy, continue to put pressure on inflation, despite the economic slowdown.
According to the most recent edition of the Focus bulletin, a weekly survey of market analysts, the basic rate should be maintained at 15% per year until the end of 2025 or beginning of 2026. The divergence now is on the timing next year when interest rates will begin to fall.
Inflation
The behavior of inflation remains unknown. Preview of the official indicator, the Broad National Consumer Price Index-15 (IPCA-15) was just 0.18% in October and accumulated 4.94% in 12 months. The average price of food fell for the fifth consecutive month. The IPCA for the 31 days of October will only be released on the 11th.
According to the latest Focus bulletin, a weekly survey of financial institutions carried out by the BC, the inflation estimate for 2025 fell to 4.55%, against 4.8% four weeks ago. This represents inflation slightly above the ceiling of the continuous target established by the National Monetary Council (CMN), of 3%, which could reach 4.5% due to the tolerance interval of 1.5 points.
Selic Rate
The basic interest rate is used in negotiations of public bonds issued by the National Treasury in the Special Settlement and Custody System (Selic) and serves as a reference for other rates in the economy. It is the Central Bank’s main instrument for keeping inflation under control. The BC operates daily through open market operations – buying and selling federal public bonds – to keep the interest rate close to the value defined at the meeting.
When Copom increases the basic interest rate, it aims to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. Therefore, higher rates can also make it difficult for the economy to expand. But, in addition to the Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses.
By reducing the Selic, the tendency is for credit to become cheaper, encouraging production and consumption, reducing inflation control and stimulating economic activity.
The Copom meets every 45 days. On the first day of the meeting, technical presentations are made on the evolution and prospects of the Brazilian and world economies and the behavior of the financial market. On the second day, the members of the Copom, formed by the BC board, analyze the possibilities and define the Selic.
Continuous goal
Through the new continuous target system, in force since January this yearthe inflation target that must be pursued by the BC, defined by the National Monetary Council, is 3%, with a tolerance range of 1.5 percentage points up or down. That is, the lower limit is 1.5%, and the upper limit is 4.5%.
In this measurement model, the target is determined month by month, considering the inflation accumulated over 12 months. In November 2025, inflation since December 2024 is compared with the target and tolerance range. In December, the procedure is repeated, with calculation starting in January 2025. In this way, the verification moves over time, no longer being restricted to the closed index for December of each year.
In the latest Monetary Policy Report, released at the end of September by the Central Bank, the monetary authority maintained its forecast that the IPCA will end 2025 at 4.8%but the estimate may be revised, depending on the behavior of the dollar and inflation. The next edition of the document, which replaced the Inflation Report, will be released at the end of December.
